Barriers to Understanding

Once again I find myself using Chris Matyszczyk's Technically Incorrect blog for CNET News to track down source material far more interesting (and less frivolous) than the post itself. In this case the source appeared in the Spring 2009 issue of the NYU Journal of Law & Business with the provocative title, "A License to Deceive: Enforcing Contractual Myths Despite Consumer Psychological Realities." The authors are Debra Pogrund Stark, of the John Marshall Law School, and Jessica M. Choplin, of DePaul University. A reductive summary of the paper would be that it is about whether or not a plaintiff's failure to read the fine print of a contract constitutes grounds to excuse the defendant from charges of consumer fraud.

There is a certain literary irony in the fact that the "abstract" for this paper does not fit on a single screen of my Firefox browser, which left me wondering how long the actual article is. (Page numbers were not in the suggested citation. Fortunately, however, the download was free; so I took the time to retrieve a copy. The whole paper is 89 pages long, although the text itself concludes at the top of page 51.) In spite of its length, the "fine print" of the abstract offers enough rewarding reading to be reproduced:

Are consumers "foolish" or "negligent" when they trust what salespersons falsely tell them rather than read all of the terms of the contracts they sign? Should consumers be barred from bringing a fraud action on the ground that they have not "reasonably relied" upon such false statements or deceptive conduct when the form contract they sign states that they have not so relied? Currently seven states' courts have interpreted their consumer fraud statutes to require "reasonable reliance," and three-quarters of the states' courts impose this requirement for a common law action for fraud. Some courts have also ruled that the presence of a "no reliance" type clause bars a consumer from being able to raise the alleged false statement or deceptive conduct.

The attached article, "A License to Deceive: Enforcing Contractual Myths Despite Consumer Psychological Realities," provides an interdisciplinary analysis of this important aspect of consumer fraud law. The article proposes law reforms based upon the results of our fraud simulation study, reading contracts survey, and an analysis of the cognitive and social psychological reasons why consumers trust what salespersons tell them rather than read all of the contract terms.

In our survey of consumers, we found that on average 67% of the consumers reported that they failed to read all of the terms of the contracts they signed among the six different categories of consumer transactions surveyed (agreements relating to computer software, rolling contracts, car rentals, apartment leases, home purchase and home loans). As detailed in the article, the primary reasons why consumers rely upon what the salesperson tells them and fail to carefully read and understand all of the terms of the contracts they sign are due to cognitive barriers such as: (i) visual and comprehension challenges based upon the manner in which many form contracts are drafted, (ii) analytic deficiencies based upon schema deficits, (iii) positive confirmation biases, (iv) inability to imagine possible negative outcomes (i.e. the availability heuristic), (v) default assumptions, and (v) sunk cost effects. The article also explores some of the social psychological reasons why consumers fail to read the contracts they sign including: (i) misplaced trust in the defrauders due to a variety of factors which creates a strong motivation to trust which is exacerbated when the consumer is of a lower socio-economic status, (ii) social norms not to read contracts in certain contexts and a concomitant social value to trust, and (iii) a perceived (and often real) inability to negotiate the terms of the contract.

In light of these cognitive and social psychological barriers to reading and understanding all of the terms of the form contracts that consumers sign, we contend that courts are enforcing a contractual myth and creating a license to deceive when they enforce no reliance type clauses in contracts when in fact many consumers do in fact rely upon such statements in making the decision to purchase the product or service. Ninety percent of the public we surveyed reported that they expect that the terms of the contracts they sign will be consistent with the salesperson's statements and eighty percent reported that if there is an inconsistency they think the company should honor the statements made by the salespeople when the consumer has not read the terms of the agreement.

While promoting certainty of contractual obligations is a legitimate goal, and the enforceability of "no reliance" type clauses through the reasonable reliance requirement is sensible under certain conditions in transactions between sophisticated companies, this article contends that based upon our empirical data it is not sound policy to make it a bar to a consumer bringing a common law fraud action or a statutory fraud action (the consumer would of course still have the burden to prove that the parol false statement or deceptive conduct took place).

This article comprehensively addresses an important aspect of consumer fraud among the fifty states and provides very important data relative to the issue of consumer protection in general and consumer fraud in particular.

To find out what makes the analysis interdisciplinary, the reader must turn to the footnotes, which provide richer credentials than the "byline" of the paper. Stark is a Professor of Law, and Choplin is an Assistant Professor of Psychology. Since I have always felt that jurisprudence has to reconcile the objectivity of legal codes with the subjectivity of the parties in any legal case (if not the normative practices of their social world), I view these authors as a much-needed dynamic duo in the research of an area as highly charged as consumer fraud.

What most drew my attention to this abstract, however, were the two enumerations in its middle paragraph, both of which are concerned with what may be called "barriers to understanding." I find this aspect of their study an excellent continuation of Jürgen Habermas' extensive research into the nature of understanding and the question of how understanding is achieved through communicative action. Most important is how those two lists encompass the objective, the subjective, and the social, the three "worlds" at the foundation of Habermas' model of understanding. Ironically, there is no mention of Habermas in the full Stark-Choplin paper. (One advantage of a digital text is that you do not have to read the whole thing, or even skim it, when you have a good search tool! Whether or not that really is an advantage is left as an exercise for the reader!) Equally interesting is that the authors' first list of five "cognitive barriers" generalizes with little difficulty to domains of discourse beyond the text of contracts, while the second addresses practices that deliberately thwart understanding, which may again be generalized beyond the domain of contracts. As I have previously observed, Habermas was too focused on his "ideal speech situation" to afford much attention to the idea that communication might have more to do with undermining understanding than with achieving it; and in this respect Stark and Choplin add to the shortcomings of his work with valuable experimental data.

Nevertheless, there is an extent to which deception is subject to that same arms race metaphor that I recently raised in the matter of economic regulation, thereby comparing it to spam filtering. If we know that there are specific strategies for thwarting understanding, then we can be more aware of them. However, as we become aware of them, those who mean to deceive us will probably come up with new strategies of their own for doing so. This may be one reason why, in the almost 1000 pages of The Theory of Communicative Action, Habermas never elected to venture beyond the confines of the ideal speech situation, figuring that going there would be too depressing.